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Janis Sarra, UBC School of Law and co-principal investigator, Canada Climate Law Initiative (CCLI)

New report offers retail company directors guidance on how to deal with climate change risks

Monday, January 17, 2022 @ 11:54 AM | By Ian Burns

A new report from a legal think tank is calling on officers and directors of retail companies to be aware of the risks they face due to the changing climate, noting investors and consumers are putting increasing pressure on retailers to protect the climate and move to net-zero emissions.

The guide from the Canada Climate Law Initiative (CCLI) notes retailers face significant transition risks due to changes in policy and emerging technologies, as well as increasing regulatory requirements to lower carbon footprints, engage in effective waste management, eliminate single-use plastics and develop ethical supply chains. There are also pressures around litigation related to companies failing to mitigate the impacts of climate change, failure to adapt, insufficiency of disclosure regarding material financial risks, and “greenwashing” — misrepresentation of the sustainability of the company, its supply chains, and/or the products being sold — with substantial fines being levied for retail misrepresentation.

Report author Janis Sarra, a professor of law at the University of British Columbia and principal co-investigator at the CCLI, said companies are also feeling the impact of acute weather events on the physical side, pointing to the “atmospheric rivers” of torrential rain which impacted British Columbia late last year and the resulting impact on rail lines and highways.

Janis Sarra, University of British Columbia

Janis Sarra, University of British Columbia

“Major disruptions of the value chain are one of the biggest impacts of a changing climate, and this is just going to exacerbate as the frequency of acute events increases,” she said. “And physical assets themselves, like retail warehouses and stores, have been flooded which leads to direct damage to their merchandise. Flooding is now the single biggest cost in terms of insurance costs in Canada now, and that damage is being done from all of these acute events.”

The report offers guidance to the retail sector on how to approach the risks it faces, which is broken down into three categories — governance oversight and strategic planning, oversight of material risks and best practices in reporting on financial statements. Sarra noted climate change has been accepted by many as an existential threat to the economy and to society, and corporate directors have an obligation to consider what those risks will be to the business and what the opportunities are for the business as part of a general duty of care.

“Investors are increasingly asking for effective governance as part of their consideration of whether to invest in retail companies or not. And consumers are increasingly asking retail companies what they are doing to protect the climate and transition to net-zero emissions,” she said. “Capital is generally moving towards businesses in all sectors that are addressing these risks, because they understand failure to do so will really result in systemic failure.”

The guide said there are various opportunities for retailers in the transition to a net-zero economy such as energy efficiency measures, moving to circular economy operations and taking advantage of rapidly developing in-store and online digital technologies. The retail sector is a significant contributor to greenhouse gas emissions, estimated at nearly 11 per cent of Canada’s total emissions when warehousing and distribution is included. And about 95 per cent of that are indirect emissions from the purchase of energy and the value chain.

Sarra noted there is empirical work which says consumers are willing to pay a premium for retail products, knowing that they have made on an environmentally sound basis and they are made by workforces that are paying fair wages.

“Investor and consumer preferences are changing,” she said. “Millennials and Gen Z are speaking with their purchasing dollars, voicing serious concern about climate change. Effective oversight of climate risks and opportunities is therefore critically important to the retail sector.”

The CCLI will also be holding a webinar on the guide Feb. 9. See here for more information.

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